Monday, November 5, 2012
For many business owners, a buy-sell agreement serves as the last will and testament for the family's largest asset. With the changes in the economy, it is more important than ever for a business to review its buy-sell agreement. Forbes lists five specific reasons to do such a review:
1. The value of your business has changed and is not reflected in the agreement. It is problematic when a specific value is named in the document, and there is no provision to deal with the fact that the business is now worth a different amount.
2. The valuation used in the buy-sell is a tax trap. Even if you assign the book value to the business, the IRS has the authority to value the business at a higher earnings valuation for estate tax purposes.
3. The spouse is ignored. It can be disastrous to create a buy-sell plan without taking marital issues into account.
4. The buy-sell is silent on key triggers that cause shareholders to leave. Death is not the only trigger that can cause shareholders to leave. Consider other triggers such as disability, divorce, departure and dissolution.
5. The buy-sell is not funded as it should be. The funding terms should also match up with the terms of the buy-sell.
See Steve Parrish, 5 Reasons to Review Your Buy-Sell Agreement NOW, Forbes, Nov. 5, 2012.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.